Democrats vs. Republicans: Who wins the game of tax-cut chicken?

With Democrats vowing to extend middle-class tax cuts without including higher incomes, the parties are poised to play a high-stakes game of chicken over the thorniest issue of the lame-duck session.

The debate will not only highlight the ideological divide between Democrats and Republicans, but also hint at the message each side took from the midterms, all while setting a tone that could reverberate well into the next Congress.

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Which side emerges victorious, in the eyes of voters, will hinge largely on which party sells its message more effectively. Are tax cuts on the highest incomes a budget-busting giveaway to the wealthy, as most Democrats argue? Or are they an economic necessity to prop up small businesses amid an employment crisis, as Republicans contend?

It's a looming marketing battle in which the political outcome appears even less certain than the policy result; indeed, many observers anticipate the fight will end with a temporary extension of all the cuts, to be revisited a few years down the line.

At issue is whether George W. Bush-era tax cuts, which sunset at the end of the year, should be extended to include all incomes, or just earnings below $250,000 per year for families and $200,000 per year for individuals.

The Democrats — behind their liberal base — are urging an end to the cuts on the highest income brackets. Senate Majority Leader Harry Reid (D-Nev.), Speaker Nancy Pelosi (D-Calif.) and House Majority Leader Steny Hoyer (D-Md.) this week all vowed to force a separate vote on the middle-class extension.

“We want to give Republicans an opportunity to vote on [the GOP's broader] legislation and we want the opportunity … to vote once, twice, whatever it takes to show the American people we support the middle class,” Reid said.

That strategy would allow Democratic opponents of the upper-income benefit to oppose the measure without harming less wealthy folks.

Sensing the threat to an across-the-board extension, Republicans have promised to kill the two-vote plan. GOP leaders say a tax hike on the highest earners would hobble small businesses just as the economy is emerging from the worst downturn since the Great Depression.

"Raising taxes in this environment is a non-starter for me and millions of American small business people who are struggling to keep the lights on and meet their payroll obligations,” said Minority Whip Eric Cantor (R-Va.).

The expected standoff is indication that both parties believe their message will resonate more clearly with voters.

The White House has entered the fray as well. Earlier this year, President Obama pushed to limit the extension to the lower-income brackets. After historic Democratic losses in the midterm elections, however, he's signaled he would be open to talks on extending the cuts across the board.

Some Democrats worry that, by softening its position, the White House is ceding victory to the Republicans before the debate's even begun.

"It's time for the White House to grow a [spine] and to stop conceding before there's even a negotiation," one Democratic strategist told The Hill.

House Democrats, who retain their broad majority in the lame duck, would have an easier time passing the middle-class tax cuts without including higher incomes. That plan carries some risks, as it could alienate moderate Democrats — already feeling left out following divisive leadership races — who favor the broader extensions.

They may not need to worry. The two-vote strategy has little chance of surviving the Senate, where Republican leaders, backed by a handful of Democrats, are insisting the extensions be considered as a package.

A filibuster of the Democrats' proposal, however, carries its own perils for conservatives, who would be forced to go on the record "holding the middle-class tax cuts hostage," in the words of Dean Baker, co-director of the liberal Center for Economic and Policy Research who opposes extending the cuts for wealthy Americans.

Michael Bailey, political science professor at Georgetown University, agreed that "the optics" of fighting the tax plan could spell trouble for the GOP.

"That's gotta be the dream scenario for the Democrats," Bailey said. "They should do everything they can to make that happen."

The results of the debate will have serious budget repercussions. The Democrats' plan is estimated to add $3 trillion to the debt over the next decade, while the Republicans' blueprint would tack on another $700 billion. Neither party is proposing to offset the cut in revenues with changes elsewhere in the budget.

Some polls indicate that Democrats have the edge in the public's eyes. A CNN survey released this week found that only 35 percent of Americans think the tax-cut extension should include the highest incomes. Forty-nine percent of respondents indicated the tax cuts should be extended for families making less than $250,000 a year, CNN found, while 15 percent said Congress should allow the cuts to expire for everyone.

Still, many experts expect the Democrats — faced with a Senate filibuster — will eventually work out some compromise with Republicans, perhaps a temporary extension of all the Bush-era cuts.

Baker warned that such a concession might be politically expedient. But because wealthy folks tend to save more than others, he argued, it won't help much to stimulate an economy where the unemployment rate remains near double digits.

"Giving it to Bill Gates," Baker said, "will do nothing to boost consumption."


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